The source I used to talk about satellite count (fy04 q3 10-q) was actually referring to "hot doughnut shops" (8 at the end of Q3). Today's p/r says there are 27 satellites, which means that the effect on average weekly sales is around $1500 per week, not $400. Still not earthshattering, but more significant. As kkd opens more of the these, the effect will be more pronounced.
"I will take you up on that challenge."
I think you need reading lessons.
YOU stated that you should publish an article presenting your accusations (where the PUBLIC can read it and "comment" on it....that is if it were EVER accepted by a publisher).
I stated that you are nothing but hot air and "challenged" you to submit a legitimate article.
Now you've come back and....somehow.....consider the Yahoo donut chat board a periodical....resulting in the posting of the same old crap that has become a broken record.
Who wants to read that crap?
Gimme a break, californicator.
One point that bothers me about the valuations used by KKD is the goodwill/intangible value they incorporate. This is normally used when a company acquires another company and the tangible assets do not equal the purchase price. In KKD's case, there is no huge barrier of entry into a market other than the contract they have with the people who own the franchise. They can't value the Krispy Kreme name at anything intangible since they have the copyright/ownership of that without owning the franchise. When they sell the franchise they sell to the franchisee the right to use that name. Other than their name, what intangible is there that would warrant paying a hugh premium price for the acquisition.
From an accounting perspective, the question I have about this is....How long can they carry this intangible without writing it down according to FASB 142. If they determine the useful life of this intangible asset is indefinite, they are required by this standard to test at least once a year to see if the asset still meets the requirements of an indefinite life. FASB 142 defines useful life for an intangible asset as the period overwhich the asset contributes directly or indirectly to cash flows.
How will the independent audit firm address this issue? If they agree that the life of these intangible assets is indefinite, then I would like to see how they evaluate the FASB 142 tests.
If the auditors decide the asset has a life expectancy, they will need to start writing down the asset which will impair the net profits for that period.
I would be glad to help. However, let's do this slowly and methodically with input from whomever is willing.
I would propose that we come up with general topic headings (I have a few in mind: Conflict of Interest, aka Corporate Governance; Metrics; Accounting; etc...). Subheadings of Accouting, for example, might be (Cost of Goods Sold, New Store Capex, Bad Debt Expense, etc...).
To explain why, let me go thru the points that you have raised.
1) This is true, but the effect is rather trivial. At the end of Q3, kkd had only 8 such stores. On the cc, they said these 8 averaged $15,000 per week. The extra 8 * $15,000 = $120,000 spread across 320 systemwide stores is less than $400 per week, i.e. it would drop systemwide average sales per week from $62.7 to $62.3; this is NOT newsworthy imo.
2) We don't know how they're handling comp store sales after a remodeling. They haven't told us and we can only guess. Regarding a store closing, yes, the transfer of off-site from the closed location to other locations is a problem. So is the practice, as explained on a cc, of counting ALL offsite sales regardless of whether the store that it came from is even in the comp base. The underlying problem here, however, is that KKD HAS NOT EXPLICITLY DEFINED ITS COMP STORE SALES CALCULATION. This information should be disclosed, imo, and a journalist might be able to either publish it or, if kkd doesn't want to give it out, find it newsworthy that it isn't disclosed. I propose to lump this issue under METRICS - COMP STORE SALES.
3) This is an analyis/valuation issue that is not really newsworthy, imo. We could certainly compile such info in a heading of VALUATION (this particular one under the subheading GROWTH). This might make for good background in an investigative piece.
4) We don't know for sure that the price paid was absurd (though we can sure try to calculate its value in many ways and find none of them justify the price). The newsworthy thing here, of course, is that these guys were the ultimate insiders. I would propose putting this under CONFLICT OF INTEREST - FRANCHISE REPURCHASES. Additionally, the valuation could be under VALUATION - FRANCHISEES. There is NO evidence as far as I have been able to find that the franchisees are more than slightly profitable. It is reasonable to conclude, given the balance sheet data provided by the joint ventures, that the franchisees are woefully undercapitalized and leaking cash like a sieve. This raises the possibility that the repurchases are actually bail-outs which is far more serious than paying a little to much for the franchise.
As you can see, I think some of the above could be strengthened. I think many others could be added. If we're going to do this, we might as well do it thoroughly. We don't want a journalist to contact kkd with our "best shot" and have it be easily dismissed. The evidence is, imo, and should be presented in an overwhelming manner (sort of like the Powell Doctrine).
Assuming you agree with this approach, I'll think for a few days (sometimes out loud) what I consider the relevant headings (and subheadings to be).
Let me know and good luck.
I will take you up on that challenge. I am going to place some key arguments here. I request that Divursefi and others please help in my refining of these points. I will take them to two journalists at different publications and they can do as they wish: The key points:
1. the average store sales statistic provided by Krispy Kreme each quarter to analysts is misleading in that Krispy, as it adds stores each quarter, both factory stores and satellite cold donut stores, only uses "factory stores" in the denominator while including all stores but includes all KKD stores including satellite cold donut stores in the numerator.
2. the comparable stores sales figure KKD has provided is similarly misleading. One element warping this number is KKD's practice when closing a store for remodeling or other purposes and removing it from the denominator continuing to use the off-site sales associated with that store in the numerator.
3. the practice of buying in franchises (at highly inflated prices) gives the appearance of growth in corporate business in a 30% to 40% annual range while most of that growth is simply moving it from the system-wide column into the company owned column.
4. Krispy Kreme has paid absurdly inflated prices for franchise buybacks from key insiders e.g Dallas, Ohio and Kansas City. KKD paid $67 million cash for five donut stores in Dallas from a former Board member. The company paid $31million for a handful of donut shops in Ohio. A reference point for a more realistic value of these franchise stores is the $2.5 million paid for two stores in Florida (from non-insiders). (The $2.5 million for the Florida stores was book value which the company stated at the time was fair value. Krispy Kreme has not revealed to its investors or to analysts its method for determining these extraordinarily generous payouts to insiders.
This is just a start. constructive comment is welcome.
>>"If i/r gives a different answer than what I'm saying, I'll prove it mathematically"<<
I'm confused. Why in the world would anybody take KKD's word for how they generate their own numbers over your guesses?
"If i/r gives a different answer than what I'm saying, I'll prove it mathematically."
Interpretation: no one else is right except di_vur_se_fi, even though he doesn't have any documentation or substantiation and others (KKD) do.
Why the hell did you advise contacting i/r, then?